If you’ve dipped your toe into the world of cryptocurrency trading then you’ve probably discovered there are a lot of terminologies to learn. Some of the frequently-used terms are industry jargon that relates to cryptocurrencies and blockchain technology. But cryptocurrency investors also use plenty of slang used, especially if you visit online trading forums.
One of the terms you’re likely to come across most often is HODL, which is an investor's way of saying they plan to hold onto their cryptocurrency no matter what. In this article, we’ll discuss what HODL means, how it works as an investment strategy, and whether it’s really a good idea.
Read more >>>How to Invest in Cryptocurrency
In This Article
The Short Version
- HODL is a cryptocurrency investing strategy that originated from a type in an online Bitcoin forum.
- When an investor is HODLing Bitcoin or other cryptocurrencies, it means they’re holding onto their crypto assets for dear life.
- HODLing is similar to the buy-and-hold strategy that’s popular among stock market investors.
If you have cryptocurrency in your portfolio, it’s important to understand the risks of HODLing your coins in addition to the benefits.
HODL is simply a term that means someone plans to hold onto their cryptocurrency for the long term. There’s some disagreement on the origins of the term. Many sources claim that HODL is an acronym for “Hold On for Dear Life.” And that is what the term has come to mean today. But its origin actually dates back to a typo.
The term HODL was first used in an online Bitcoin forum where someone shared a post with the title “I AM HODLING.” At the time, the spelling was a typo rather than an attempt to be clever. But the cryptocurrency community quickly latched onto it, and it’s now popular among crypto investors who plan to hold onto their coins for dear life.
You’ll often find the phrase in online cryptocurrency forums, especially when the crypto market is down. Investors believe that even if their cryptocurrency values are down, they’ll eventually bounce back and they’ll be rewarded for HODLing.
What Does HODL Mean in Stocks And Other Assets?
HODLing as an investment strategy means you hold onto your cryptocurrency for the long term, regardless of the volatility in the market. While the term itself may be specific to cryptocurrency, the strategy itself isn’t. In fact, it resembles the buy-and-hold strategy that many successful investors use.
A buy-and-hold investment strategy generally means buying an asset and holding it for a long period. For example, someone might buy shares in a total stock market mutual fund and hold them until they retire, regardless of what’s going on with the stock market.
The opposite of the buy-and-hold strategy is active trading, where investors try to time the market (i.e., buy shares when the price is low and sell them when the price is high). The goal of this trading strategy is to earn a higher return than the market average.
Eventually, investors — whether they’re investing in stocks or cryptocurrency — must come to terms with a sunk cost if they’ve invested in a failing asset. But many cryptocurrency investors are determined to HODL their coins to the end. Sometimes, this can cause them to let emotions lead their decisions and they hold on to a cryptocurrency that’s plummeted and isn’t likely to bounce back.
What Does HODL Mean in Crypto?
One difference between buy-and-hold stock investing and HODLing is the end goal. When people invest in stocks and stock funds, they’re often saving for a particular goal like retirement. But in the case of HODL, many cryptocurrency investors are holding their coins because they believe that cryptocurrencies will someday replace fiat currencies like the U.S. dollar.
What Does I HODL Therefore I Am Mean?
One final term you might come across when investing in crypto is the term “I HODL therefore I am.” This saying is a bit of a meme in the crypto community and is a spin-off of the quote “I think, therefore I am” from French philosopher René Descartes.
The saying has popped up on various crypto communities on Reddit, and it's even been Tweeted by prominent figures like Tyler Winklevoss, the founder of crypto exchange Gemini and Winklevoss Capital Management.
As you can probably tell by now, the crypto community is certainly a fan of puns and memes, especially when it relates to HODLing.
Pros & Cons of HODLing Bitcoin or Other Cryptos
Like any investing strategy, there are some pros and cons to HODLing cryptocurrency. Here's what you should know
The benefit of the HODL strategy is that inventors aren’t trying to time the market. Decades of investing data have known us that people are rarely successful with a day trading strategy. And while someone might earn a large profit with one trade, they tend to lose more often than they win.
But when someone HODLs their cryptocurrency, they aren’t concerned with day-to-day market fluctuations. Instead, they believe in the success of cryptocurrency over the long-term. And they're willing to accept short-term volatility because of it. And the good news is this determination helps investors avoid making emotional decisions like buying when cryptocurrency prices are high and selling for a loss when prices are low.
That being said, there are some disadvantages to the HODL strategy. First, for some investors HODL may actually represent the lack of a real strategy. They’ve seen that other investors have made huge profits investing in Bitcoin and Ethereum, and so they throw their money into it hoping to see the same result.
Another downside of HODLing lies not in the strategy, but in cryptocurrency itself. While the stock market has been around for more than 100 years, cryptocurrency is still in its infancy. There’s little history we can look back on to predict what the crypto market will do in the future, especially in terms of market volatility. We know the stock market has bounced back from every correction and recession in history, so we can expect it will do the same in the future. But we can’t necessarily say the same about cryptocurrency.
Finally, some cryptocurrency inventors using a HODL strategy may not be paying attention to changes in their asset allocation as their crypto investments grow. As a result, they could end up with a considerable amount of their overall portfolios in cryptocurrencies. But given the volatility and speculative nature of crypto, rebalancing to limit risk exposure becomes even more critical.
Read more >>>How to Diversify Your Investment Portfolio
The Bottom Line
HODLing is an investment strategy among cryptocurrency investors who plan to hold their coins for the long term. While the word originated from a typo in an online forum, it’s become a rallying cry of sorts for the cryptocurrency community.
While the term HODL might be relatively new, the strategy is anything but. In fact, it’s similar to the buy-and-hold strategy that many financial experts recommend for all investors. That being said, there are some unique risks and nuances to crypto that should be understood before you decide to become a crypto HODLer.
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